The American stock market is returning to the reality of the figures, between an economy still in good shape but in which inflation is no longer falling.
The American post-election rally is over as the Trump administration prepares to take the reins of power. The American stock market is therefore returning to the reality of the figures, between an economy still in good shape but in which inflation is no longer falling, forcing the Fed to review the number of rate cuts this year.
In a few days the second phase of Donald Trump’s presidency will begin and the least we can say is that the last few weeks have already been rich in declarations, more or less eccentric, from the future president American. Regardless, it would have been almost disappointing if Trump didn’t do Trump in terms of communication and the markets will have to get used to it again over the next 4 years.
After anticipating and celebrating the victory of the American billionaire in November, the stock markets have gradually lost altitude so that we should ultimately find ourselves with almost zero performance between the day of the vote results and that of the inauguration of the new president. Multiple factors explain this, including a part of psychology, Donald Trump having no equal in galvanizing his supporters and wielding the art of bellicose negotiation. However, what has worried the markets in recent weeks seems to be more down to earth… the return of inflation or rather its non-disappearance. Ultimately, isn’t everything going uphill with Donald Trump?
Enough jokes, it is not yet time to question whether operators have seen the stock markets as being too good for the coming months, but doubt is starting to creep in among some. The recent attitude of the American central bank surprised no one but confirmed to investors that unlike a year ago they would have to moderate their expectations in terms of rate cuts and that only economic data pointing towards controlled inflation and a somewhat slowing job market would be credible triggers. Not quite what the latest US figures suggest.
No excessive pessimism, however. That the American economy continues to run at full capacity and that this generates inflation, therefore preventing the FED from lowering its rates as much as the market (or Donald Trump) would like, does not seem to be a sufficient argument. to stay away from stocks. On the other hand, it seems wise not to believe in miracles, especially those that the Trump administration seems to want to achieve.
The application of certain ultra-liberal concepts mentioned here and there and aimed at asserting American supremacy or correcting commercial situations deemed unfair will be by nature inflationary. The implementation of tariffs or the sending back to the border of inexpensive foreign labor seems to be very bad news for the American consumer and induce an increase in certain production costs for business managers.
It therefore remains to be seen to what extent such measures would enable American companies to gain market share or promote the employment of American citizens, given the unemployment rate is already low. Furthermore, it seems likely that the inflationary effect of the implementation of tariffs and/or a more conservative migration policy is more immediate than the potential positive impact on the American economic machine.
Among the miracles not to be believed immediately on the stock markets there is that of American small and medium capitalizations which would make up for their performance gap vis-à-vis the big names on the stock market. If we want to remain pragmatic, the cost of financing for this type of company remains too high in the current environment. It is therefore towards Saint Jerome (Powell!) that they must turn and the latter will only hear their prayers for a rate cut once the inflationary specter has been pushed back.
A second miracle that should not be counted on too quickly is that of a reduction in the American deficit. With all due respect to the worshipers of Elon Musk, it seems unlikely that the action of the DOGE (department of government efficiency) of which he is spearheading (or even much more than that…) will be sufficient and especially quickly implementable to see the dizzying rise of the American debt moderates. The muscular methods of the founder of Tesla in terms of organization as well as the probably intensive use of artificial intelligence will certainly contribute to “thinning the mammoth” of the American administration to use the well-known expression of the recently deceased Claude Allègre, then French Minister of National Education. From there to quickly reversing a serious trend like that of the budget deficit of the leading world power there is undoubtedly a step. Additionally, the cost of servicing the US debt in the current high interest rate environment now looms large in the budget (higher than defense). On this point, it is again towards Saint Jerome that we will have to turn, with all due respect to Saint Donald.
As the saying goes, it is better to talk to God than to his saints. When it comes to long-term investing in the stock markets, God is the companies and their results. In other words, even though Donald Trump and Jerome Powell have powerful means of influencing the markets, it is rather the application of the sacrosanct principles of investment which still seems important this year. Portfolio diversification and robustness of the balance sheets of invested companies are to be favored in the face of the potentially miraculous declarations of the new American president whose oratorical talents could easily encourage certain investors to no longer separate the wheat from the chaff.
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